MHP’s USD 50m deferred coupons may not reach current bondholders

Breaking News 18 November

MHP’s USD 50m deferred coupons may not reach current bondholders

MHP, a Ukraine-based farming group, is likely to pay USD 50m worth of Eurobond coupons deferred over the spring to investors who held the notes at the time, rather than its current bondholders, according to two sources familiar with the situation. The company’s management communicated this to investors during an earnings call held earlier this week, the sources said.

Under the terms of a consent solicitation approved by bondholders in March, only bondholders at the record date (when coupons were due) are set to receive the deferred coupons, management said, according to the sources.

But many of these holders have now exited MHP’s bonds, meaning some investors could be receiving the postponed amounts without holding the company’s bonds, the sources noted.

In March, the company received bondholder approval for a consent solicitation on its USD 500m 7.75% 2024s, USD 550m 6.95% 2026s and USD 350m 6.25% 2029s, seeking a 270-day extension of the grace period on its coupon payments due from March to May, to preserve liquidity amid Russia’s ongoing invasion of Ukraine.

The company postponed USD 49.4m worth of coupon payments over the period, which it expects to pay in full and on time, it said in this week’s results release.

As the nine-month extension draws to a close, the company is set to pay deferred coupons on the 6.25% 2029s on 19 December, on the 6.95% 2026s on 3 January, and on the 7.75% 2024s on 5 February, according to the first source.

Some existing holders have asked the company to try and find a way to ensure the deferred payments reach them rather than record holders, including launching a new consent solicitation to this effect, the sources said. This option might face some complications to implement in practice, according to the first source.

“The idea of asking current bondholders whether they wanted the money sent to them rather than sent to other people who can’t vote is of course neat,” said the first source. “But I would say it is not exactly fair.”

In any case, the first source believed it was unlikely that the notes’ trustee would be able to identify which investors held the bonds at the record date to send the payments.

“I half-expect the money to go to current holders because the trustee would not be able to do anything else,” the first source said. “And most people would have thought that this was OK.”

While the company expects to be able to pay the deferred coupons, there is uncertainty about its ability to make external debt payments in the new year, given restrictions in cross-border payments as part of martial law in Ukraine, according to the sources.

The USD 50m worth of deferred coupon payments can be covered by cash held outside of Ukraine, but there is more uncertainty about other payments due next year, management said on the call, according to the second source. The company has been making coupon payments on its Eurobonds due since June.

The group reported USD 317m in cash and cash equivalents as of 30 September 2022.

The company has also begun negotiations with banks to postpone debt servicing due in February next year, according to the second source.

During the nine months leading up to September 2022, MHP agreed with its lenders to defer USD 136m in debt servicing on bank borrowings, according to its results release. “According to these agreements, principal payments were rescheduled to February 2023,” the release reads.

MHP reported a 10% year-on-year revenue increase in 3Q22, to USD 727m. Adjusted EBITDA (net of IFRS 16) fell 35% to USD 121m. The company’s export business, which posted revenues of USD 470m in 3Q22 compared to USD 341m in 3Q21, appeared healthy, according to the results.

“I was pretty surprised how well sales and exports are holding up,” said the first source. While volumes were down, increased prices have benefited the company, that source added.

A spokesperson for MHP did not reply to requests for comment.

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